$HERO: Follow Up on a Winner

Back in December I posted about HERO and said that it was blasting off.  Here's a quick update on this play.  It has continued on its uptrend tear since the announcement of it taking over $HAWK, which now makes HERO the only shallow water driller in the Gulf of Mexico.  Although its in a major uptrend, HERO is a little overbought on both the Weekly and Daily time frames.  That means that it's most likely prudent to wait for a good pullback before entering a long position.  Here's an updated chart:

I'll continue to keep an eye on this one because I don't think it has fully played out.  Hope everyone is doing well.

TLT

A Look at Tomorrow's Trading: $AAPL and its Implied Range

Would it be nice to know the range for Apple's trading tomorrow?  It could be useful.  Here's a cool indicator that I coded and have been playing with quite a bit lately.  It's a band of the trading range for tomorrow that is derived from the implied volatility of Apple's options and I call it tomorrow's "implied range".  Here's a screen shot:

A crystal ball?  Not quite.  But it is a cool way to see which direction that tge market has a bias for.  I run these numbers for the entire S&P500 on a daily basis to see what tomorrow's implied range and what next month's implied range is for every stock.  I track these number in a spread sheet.  I'm still figuring out how to incorporate this into other aspects of my trading..it seems to have some good potential.

So, for what it's worth, the options market is predicting that $AAPL will trade down tomorrow.  Since Apple is a Leader in the market, this might drag down the entire market.  It might be nice to know how many stocks in the S&P500 the options market is predicting will trade higher or lower...that could provide a nice edge going into the trading day.

I hope everyone's ready for another great trading week.

TLT

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As someone was nice enough to point out...today is president's day so the markets are closed.  This range would be the implied range for the next trading day which is Tuesday.

Using a Correlation Indicator in Trading--Plus the TOS Script

I've recently been utilizing a correlation indicator with my intraday trading.  In particular, I like to use a correlation indicator with Think or Swim when trading the Eur/Usd...I like to follow the correlation of the Eur/Usd to the E-Mini futures contract (/es).  This can be beneficial when you like to use market internals while trading.  For instance, I'm always watching NYSE Advance/Declines, NYSE UpVolume vs. DownVolume, the TICK and the VIX.  These indicators are great for trading stocks but are sometimes useless when trading a currency pair or commodity.

The answer?  Watch a correlation chart of the pairs.  When the correlation is strong and rising, the market internals are more useful for trading the Eur/Usd and when the correlation is weak and falling, I know to ignore them.  Here's a chart:

So as you can see, the Blue Line is the actual correlation and the Blue and Purple histogram is the spread between the 20 period EMA of the Correlation and the Correlation.  The histogram helps with the determination of whether the correlation is growing stronger and weaker and the actual correlation line is helpful to know how correlated the securities are.  This type of strategy is helpful with currencies, but it can also be applied to all types of trading:  stocks, sectors, commodities, and futures of all sorts.  For instance, you can watch the correlation between the gold contract and Gold Corp (GG) when day trading GG.  Or the correlation between gold and equities in general could be helpful too.  Just food for thought. 

In case any of you out there like to dabble with Think or Swim scripts here's the code for this indicator.  It is just a modified version of the correlation indicator that comes stock with think or swim.  Here you go:

 ######################################
declare lower;

input length = 50;
input correlationWithSecurity = "/ES";
input MAPeriod = 20;

def Correlation = correlation(close, close(correlationWithSecurity), length);

def correlationavg = ExpAverage(correlation, MAPeriod);

plot data = Correlation - correlationavg;

plot data2 = correlation;

data2.setdefaultColor(color.blue);

def data3 = 0;


data.SetPaintingStrategy(paintingstrategy.histogram);

data.assignvaluecolor(if data>0 then getcolor(1) else getcolor(0));

addcloud(data2, data3, getcolor(1), getcolor(0));
###################################################

Hope all is well with everyone!

TLT

A Glimpse at the TLT Trender v3

Haven't posted in a while, I've just been really busy with work and life in general.  All though I haven't posted much, I have still been very active in the markets.  Also, I've been working on the next generation of my trend following system--The TLT Trender, which is now on its third version.  This version is taking a little while, mainly because I've been coding it myself and I've been coding it for Think or Swim, as opposed to MetaTrader 4 on the last version.  Here's a screen shot of what it looks like right now: 

As you can see from the chart above, the bars on the chart change color based on the current signal.  The bars are changing color based on the reading of the Thermo Adaptive indicator down in the second indicator window.  The Thermo Adaptive indicator is the heart of the system and the ATR Average Compare indicator in the third window acts as a confirmation of trend (2 is a strong uptrend, 1 is weak uptrend, 0 is neutral, -1 is weak down trend and -2 is a strong downtrend). 

The Thermo indicator is based on the previous thermometer that I've posted on before.  Although it is similar, this version is much different and far more sophisticated.  This indicator constantly tracks a stock's ability to make higher highs and higher lows and trade around significant levels (like 52 week highs or 20 day highs) and then the indicator tracks current prices verses different averages of these thermo readings.  The different averages are actually adaptive averages (hence Thermo Adaptive) and they will tighten up when trending and loosen up when price action is choppy and inefficient.

I'll post more about these new versions of my indicators soon and maybe post some of the code for other Think or Swimmers out there.  One neat way that I've recently (like a week ago) began implementing this indicator is by taking current readings of every stock in the S&P 500 on three different time frames on a daily basis.  This is allowing me to track the trends in different sectors on different time frames to get a feel for the orderflow in the market.  It's still early and there's much more work to be done.  I'll post more soon.

TLT